Minding Ag's Business

Cash Renters from Mars, Landowners from Venus?

Cash rents have dipped the past two years, but not enough for renters to breakeven on average, University of Illinois economist Gary Schnitkey says.

There's a big gap between what average cash renters need in 2016 rent relief and what professional farm managers and some independent landowners are willing to give, as Elizabeth Williams and I reported in our recent series, "Cash Rent Reset."

Obviously, projected budgets with $100 to $150/acre losses on corn don't seem to be making the case with owners. I can only compare this attitudinal difference to the book, "Men are from Mars and Women are from Venus." The two camps view the problem with far different lenses on reality. It could be that some owners feel underappreciated, after the Peak Corn profits of 2006-2013, or the perception that crop insurance proceeds and government transfer payments ought to come into the picture, even though they can be difficult to predict and can come a year after harvest.

Most farm operators I know profess to pay landowners the going rental rates in their counties, add big bonuses in bumper years like 2012, manicure fields like a golf course, and open their books to share breakevens, yields and soil tests. They want to prove they use best conservation practices and don't mine soil fertility.

Unfortunately, I hear from landowners who complain they don't know yields on the land they own, never see a bonus or haven't had a rate adjustment for years. Some who rent to siblings say their on-farm partners feel entitled to make decisions, such as always charging under the going rate just because they're family. Over the weekend, one Michigan farmland owner--a Wall Street banker who bought a farm in his hometown recently--complained the cash rent hadn't been adjusted in more than a decade by the previous owner, so he's more inclined to turn it back to a hunting preserve than farm it at these rates.

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Jim from Indiana emailed to ask where were the bonuses when renters were clearing $1,200 to $1,600/acre?

"I have two very good tenants with set lease terms based on Purdue's Land Value and

Rents bulletin, which was gathered in June and is probably out of date now," Jim says. "We have not discussed 2016 rent, but both tenants receive FSA payments and insurance. I never see the amounts, therefore I am at a loss as to the gross amount received per acre. I am sure we will come to an agreement, if not I am prepared to either hire it done or let it sit idle. I still wonder where were you when bonuses could have been paid? We wouldn't mind taking a big cut now."

Both professionally managed farms and independent cash rents will likely fall on average in 2016, but neither will tumble enough to help tenants reach breakeven at $3.85 corn and $9 soybeans, University of Illinois economist Gary Schnitkey concluded in a Sept. 22 post on farmdoc daily. http://farmdocdaily.illinois.edu/…

Schnitkey reports a survey of Illinois farm managers shows they expect excellent quality farmland (yields over 190 bpa corn) to bring $318 next year, down from $374 in 2014, or about 15% from their peak. Lower quality land will absorb similar cuts. The problem is, that's more than $100/acre above potential returns for operators before cash rent. If projections pan out, it will be the third year in a row that operators will shoulder net losses on rented property, Schnitkey says.

Farmers like my friend Mark from Ohio seem to be able to speak landlord language. He opens his books to his land partners, so they know his yields and prices. He's converted almost all of his leases to flex arrangements, so they highly rewarded owners during the Peak Corn years. Owners seem willing to share the risks of 2016, given his track record. If prices and/or yields rise more than expected, they will share the wealth with a bonus.

"I even had one landowner who returned my bonus check in 2013," Mark said. "You don't hear about that in the media." We should all be so lucky.

For a recap of what's at stake in 2016, or to share DTN's recent "Cash Rent Reset" series with your landowners, go to at http://www.dtn.com/…

For a DTN Reporter's Notebook video on 2016 cash rents, go to http://bit.ly/…

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Comments

I agree with Raymond Simpkins, the tenants drove the price up on the rent so the guy across the fence didn't get it now they scream poverty

Raymond Simpkins

10/10/2015 | 6:20 AM CDT

Freeport,You are right there is room to capitalize if you were smart and put money away. But many didn't and wont survive. I feel we are not in a time of low grain prices,but more the norm. The very high prices were the abnormal. Rent is not the whole problem with most ,a lot of guys are way over equipped. Some around here have 2-3 new combines and ran all their beans in 2 or 3 days. Can't do that any more. Marcia had some guy on here last spring,bought new planter and planted corn one day and beans the next and was done.How much did that cost per acre? So most should not be crying over high rent that they drove up in the first place. I rent a large percentage of my ground and it is the least of my concern.

Freeport IL

10/9/2015 | 11:50 PM CDT

Sorry, we thought it was a little clearer then it must be. The points are: profits have been great the prior 10 years, prior to that it was common to project cost and revenue using fall price and show a loss (at times the loss was great than the land expense); as time pasted to spring, prices improve making profit outlooks more attractive; this year's projected loss is less than times of old when looked at as a percentage of land cost. So cost, including land may not be as bad as the 1990's - not good but still not as bad. There still is many worries. Some from places no yet discovered. Ag corporation are restructuring to reduce cost which has a chance of working it way to the farm. Spring grain prices will likely be higher - improving profit opportunities. The basic message is we are farming as if it was pre-ethanol. The door is open for those with proper capital, cost structure and marketing plan to move through. Some can and will capitalize on this situation. Freeport, IL

Raymond Simpkins

10/9/2015 | 8:58 PM CDT

Freeport what are you talking about?

Freeport IL

10/9/2015 | 3:35 PM CDT

Let's try to step away from the emotions and take a trip back in history. If one looks at the prior year's cost of production, including land, as provided by USDA on a nation level (Thanks Todd), divide that by a trend line US yield, one get a feel for the next year's cost on a per bushel basis. When that projected cost (The 2015 costs not available so 2014 were used. Our Ag supply companies are making moves to reduced cost. That might mean lower input cost this spring.) is compares with the fall insurance price ($3.82 was used for 2015) one sees the projections for 2016 is a loss as was 2015. The next nine preceding years had big profit and the last nine since â?Freedom to Farmâ? were losses. The losses in those early years when a fall prices were used were the equivalent of 100% of land cost. The projected loss for 2016 is something like 30% of land cost. When costs were compared to the spring insurance price, profits or very small losses were indicated in the last 10 seasons. The prior nine had a large variation with losses as great as 60% of land cost to profits of around 50% of land cost. This study might indicated projection for 2016 profits/losses, based on a percent of land cost, may not be as bad as the early years after just after "Freedom to Farm". Fall prices tend to make the profit prospects look worst than in the spring prices. One will need to be prudent with cost, including rents, in the coming year but 2016 does not appear as bad as the distant past, if that has any value. Freeport, IL

Bonnie Dukowitz

9/30/2015 | 12:29 PM CDT

A nickel in hand is worth more than a dime in the bush, usually.

Raymond Simpkins

9/30/2015 | 10:28 AM CDT

If I were a landlord I wouldn't budge a dime! Not when these idiots are still paying 8-10 thousand an acre for ground. You do the math.

Bonnie Dukowitz

9/29/2015 | 7:41 PM CDT

If the asking price is too much, don't agree to pay it. If the landlords expect a percentage of the crop, insurance or farm payment, then put a value on the land productivity and a share of inputs. An agreed to price is an agreed to price.

Marcia Taylor

9/29/2015 | 2:12 PM CDT

Landlords and people in general are missing the point. He who takes the biggest risk should get the biggest rewards. Rent should be valued at how well it can raise a crop, not just because corn hit $7. Farmers don't just hit the high every year with every bushel. When corn was $7-8 most sold around that $6 range. When beans were $13-15 most sold around $12. We have to protect our bottom line first. Greed will get us in the red before most other things do. Yes they took a risk, bought the land, paid for it, and want a return on the investment. But how big a return, and every year? Rent is the same as selling crop, you won't get to hit the high every year. Yes we will get a price support check. But that's why we are getting it. The price stinks for the amount of inputs we have. I don't think the landlord should get to figure it in. If hail or weather wipes out my crop should they get to figure that payment in too? When I am the one paying the premium at 80 to 85% and buying hail coverage? --RB

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